Will cars be cheaper in 2022?

Why You Should Wait Until Fall to Buy a New Car

In November, the average price of a new car was the highest it’s ever been. Waiting for the market to cool off might save you some money.

By Joe Pinsker
Jan. 16, 2023
Tap story

The average price of a new car in November was

—the highest that figure has ever been.

Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall.

David Paul Morris/Bloomberg News

Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries. A chip shortage bedeviled the industry and constricted supply.

That shortage has eased in recent months, but prices remain relatively high for many types of vehicles. In November, compact cars and compact sport-utility vehicles were, on average, selling at a markup of several hundred dollars. But large pickup trucks and midsize luxury SUVs were on average selling at $1,210 and $731 under the MSRP, respectively.

Prices fluctuate at dealerships because dealers own the vehicles before they’re sold. Buyers who might normally expect a certain amount off the MSRP, or manufacturer’s suggested retail price, are actually finding higher-than-list prices in some cases.

Dealerships are required to disclose the MSRP and any markup—sometimes called a market adjustment—on the label. The higher price also can take different forms, such as dealers add-ons like wheel protection and brake-light features that would otherwise be optional but are now required as part of the higher price.

Luke Sharrett/Bloomberg News

In addition to now-common market adjustments, high interest rates present a challenge for anyone looking to finance a purchase, says Jessica Caldwell, an analyst at the online car-shopping guide Edmunds. But higher rates aren’t a factor for those who can afford to buy a new car in cash.

The average annual rate on an auto loan for a new car was 6.5% in the fourth quarter of 2022, up from 4.1% a year earlier, according to Edmunds.

The average monthly payment on a new car in the fourth quarter of 2022, up from $659 a year earlier.

David Paul Morris/Bloomberg News

For those who plan to take on debt, Ms. Caldwell says, try calculating the total interest owed over the duration of the loan, to better compare the actual costs of different vehicles. You also might find better loan rates at credit unions.

Whitney Curtis for The Wall Street Journal

Fewer cars were sold in 2022 in the U.S. than in any year since 2011. Normally, low sales would mean that dealers offer discounts and generous loan terms, but because the problem now is reduced supply, consumers shouldn’t expect any such deals, says Tyson Jominy, vice president of data and analytics at J.D. Power.

Whitney Curtis for The Wall Street Journal

As inventories grow this year, industry analysts expect prices to cool. In December, there were about 1.1 million new cars on dealers’ lots, and that figure should increase by 80,000 to 100,000 each month, Mr. Jominy says. He thinks that consumers will see better deals once that number hits two million, and estimates that prices could drop by as much as 10% by the end of the year.

Luke Sharrett/Bloomberg News

In any year, summer’s end is typically a good time to buy a car, according to Mr. Jominy, as many auto makers offer discounts in hopes of clearing their inventories before new models are released. He thinks Labor Day in 2023 will be an optimal time to look.

Need a car sooner? Here are some ways you could save: Pay cash if you can. You might be able to get a modest discount on large pickup trucks and midsize luxury SUVs. There might also be deals available on some relatively unpopular styles. Based on J.D. Power data, there is currently a lot of inventory of luxury sedans and muscle cars, Mr. Jominy says.

Produced by Matthew Riva

Cover photo by Etienne Laurent/EPA/Shutterstock

Car Prices Expected to Remain High in 2022

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Used car prices have dipped, but the car shortage will continue to impact prices.

Key points

• Used car prices have decreased for three consecutive months to $27,246, but are still at a historical high.
• The global shortage of microchips and inventory constraints will continue to impact the availability of cars.
• Despite higher interest rates and high gas prices, pent-up demand remains strong, especially for cars under $10,000.

Auto executives recently gathered at the New York International Auto Show. While some automakers were optimistic that the microchip shortage may improve, the overall consensus is that inventory constraints would continue to impact the availability of both new and used cars.

According to Kelley Blue Book (KBB), the average used car sold for $27,246. This is down nearly $1,000 from December’s peak. While used car prices have dropped for three consecutive months, prices are still at a historical high — 14.1% higher than in April 2021. Supply constraints and pent-up demand are expected to keep car prices high for at least the rest of the year.

Shortage of microchips still impacting market

Used car prices hit an all-time high of $28,205 in December 2021, 42% higher than December 2019, right before the pandemic. Prices skyrocketed due to a combination of supply chain issues, high demand, and a worldwide shortage of semiconductor chips. Also known as a microchip, they act as the brain for modern vehicles. New vehicles require about 40% more microchips than cars made before the pandemic. The average new vehicle requires 298 computer chips.

Auto companies anticipated that car sales would drop when the global pandemic began in March 2020. As a result they slashed microchip orders leading microchip manufacturers to reduce chip output. The global economy, however, bounced back faster than expected, with people buying more chip-heavy electronics.

There are only a few microchip manufacturers worldwide, and even with all of them operating at full capacity, experts predict the microchip shortage will continue to last until 2023. This is due to the backlog of consumer demand, low inventory, and low factory output.

Pent-up demand

In March, there were 1.2 million new cars on dealership lots. This is about 50% less from a year earlier and one-third of pre-pandemic norms. The lack of vehicles means car buyers are having to often wait weeks or even months for a car. Cars that are not pre-ordered are arriving at dealerships pre-sold as consumers look to snatch up cars quickly. Even with the increase in interest rates, experts believe pent-up demand for cars should last several months.

With the shortage of new cars, consumers have begun to shift their focus to purchasing used cars instead. This has driven up prices of used cars four times faster than new cars. The extended period of low inventory for both new and used cars will continue to keep car prices high.

Cars under $10,000 are the hardest to find. Dealers only have a 26-day supply of them while they have a 37-day supply for cars priced between $10,000 and $20,000. Cars priced between $20,000 to $30,000 had a 50-day supply and cars priced over $35,000 had a 60-day supply.

What options do Americans have?

Based on your personal finances and what your needs are, it may be best to wait to purchase a vehicle until next year. J.D. Power forecasts that used-vehicle prices will drop by late 2022 and into 2023. Since it is a seller’s market, many car companies have not only raised prices, but they have sharply reduced the number of financial incentives and discounts.

If you have to purchase a car, look at expanding your search parameters. You may have to compromise on your wishlist. One silver lining is that you may be able to get a higher price if you sell or trade-in your used vehicle. This can help offset the cost of a new car. In the first quarter of this year, buyers received an average of $9,300 for their trade-ins, 81% more than the previous year.

While the prices for both new and used cars have at least ended their rocket ride for now, prices are expected to remain high as there are no signs of cooling consumer demand. Even with inflation hitting a 40-year high, car prices may increase as consumers begin receiving their tax refunds. The key is to stay patient, continue to do your research, and take care of your current car so it lasts longer.

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David S. Chang, ChFC®, CLU® is an award-winning entrepreneur and financial planner with over two decades of experience in the personal finance space. He is a graduate of West Point and a Lieutenant Colonel in the Army National Guard. He has an MBA from the UCLA Anderson School of Management.

Used cars may finally get cheaper this year — but don’t expect pre-pandemic prices

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• Used cars will finally start getting cheaper in 2022, but prices won’t crash to 2019 levels.
• That’s according to Jonathan Smoke, chief economist at the auto-industry giant Cox Automotive.
• New cars, Smoke says, won’t start getting cheaper until the end of 2023 or beginning of 2024.

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If you’ve been waiting for bloated used-car prices to crash before buying a set of wheels, there’s good news and bad news.

First, the bad news: Secondhand-car values aren’t going to suddenly plummet, and they won’t ever fall back to 2019 levels.

That’s according to projections by Jonathan Smoke, the chief economist at Cox Automotive, which owns Kelley Blue Book, the car marketplace Autotrader, and Manheim Auctions, the country’s biggest wholesaler of used vehicles.

Used vehicles — even aging, high-mileage ones — have become incredibly expensive in the last two years, mainly because a still-ongoing shortage of computer chips has slashed the number of new cars automakers are able to build and ship to dealers.

There is light at the end of the tunnel though: As supply chains come untangled and production recovers, supply and demand for used vehicles will begin to balance out. Smoke says used prices will finally start to decline in the second half of 2022.

But there won’t be the sort of drastic correction some people are anticipating.

Instead, Smoke says, used-vehicle values will basically start acting like normal again — depreciating over time as cars age and rack up miles. In other words, if you buy a 2010 Honda in July, it’ll be worth less in December. That isn’t how the market has acted in these bizarre last two years.

«We will see a return to normalcy in terms of where prices go going forward, but we’re not forecasting that prices are going to decline and go back to where they were prior to the pandemic,» Smoke told Insider in an interview.

By the end of 2022, prices of wholesale used vehicles will decline by around 3% as compared to the end of 2021, Cox estimates. Briefly, during the second half of the year, cars will depreciate slightly quicker.

Prices won’t drop like a rock for a few reasons, according to Smoke. We aren’t entering a period of extreme oversupply or diminished demand. And vehicles aren’t an asset that people offload as values dip — like stocks, for example. People buy them because they need to, not as a speculative investment, and they don’t get rid of them willy nilly.

Plus, Smoke says, the values of new and used cars aren’t all that out of whack from each other (both are elevated) so there isn’t huge pressure for them to snap back to prior levels.

Other industry watchers see things differently. The consulting firm KPMG released a report in December suggesting that «a 20 to 30 percent plunge in used-vehicle prices is in the cards» as new cars become more widely available.

A gradual decline in used-vehicle prices may disappoint anyone looking for a 2019-style bargain. The average list price for a secondhand car is now nearing $30,000. But it also potentially means people who shelled out for a car in 2020 or 2021 won’t be saddled with a vehicle they paid thousands too much for.

Used-car costs may be heading toward some sort of normalcy, but the car market overall will remain off-kilter for years.

Although carmakers are expected to churn out more vehicles in 2022 than 2021, the supply of new cars available at US dealers will stay tight for quite a while. That means consumers shouldn’t expect big discounts or deals anytime soon.

The average transaction price for a new car surpassed $47,000 in December. New cars, Smoke projects, will likely keep getting more expensive through 2023.